It is unprecedented in the history of the world to see a major economy joining the global financial system in this manner. China, already the world’s largest trading nation is eager to integrate with the rest of the world, while the pressure to make the RMB freely convertible has become increasingly urgent; but complicated by its own internal issues, China is finding a creative solution to the internationalization of its currency.

RMB traded offshore is known as CNH while those found inside of China is CNY. These two holdings can now be mutually exchangeable only for trade purposes; with proper documents presented to the various banks in various provinces where such policy has been effective. It is expected that more cities will be allowed to enjoy this facility to facilitate the use of RMB in the settlement of international trade.

China has allowed the free trade of RMB in offshore markets; and Hong Kong has been established as the “offshore MRB’ market. Since early 2010, the offshore RMB FX market in Hong Kong has grown significantly, with RMB-denominated deposits reaching RMB315bn ( or US$48bn) by the end of 2010, up from RMB62bn ( US$9b) a year earlier. Cross-border trade settlement reached RMB101 bn (US$15bn) per month as at December 2010, compared with just RMB10bn (US#11.5bn) in June 2010, the first month the trade settlement scheme as expanded to cover 20 Chinese provinces and cities.

Parallel to this development was a three-fold rise in trade settlement volume, in the first five months since expansion of trade settlement, to RMB340 bn (US$52 bn). Trade settlement will still be the primary factor determining the size of supply of offshore RMB in Hong Kong. One-off liberalization or capital accounts is not expected by most analysts in the near future.

RMB-Denominated Bonds in Hong Kong (Dim Sum Bonds)

From the list of new RMB products developed, RMB-denominated bonds, commonly known as “Dim Sum bonds” is perhaps one of the most significant. By the end of 2010, 50 offshore RMB-denominated bonds had been issued in Hong Kong. A total of RMB35.7 bn (US$5.5 bn) was raised. The average coupon in the offshore market is 1.53% (without any adjustment for credit rating), compared with about 4% for onshore state-owned enterprises. Insurance is expected to more than double in 2011.

China begins discussion of the next five year plan – 2011-2015. This is the master plan for development for the nation. In the 12th 5 Year plan, the country is expected to focus attention on TRANSFORMATION of the economy and intensify effort to attain harmony in Chinese soceity ( more to follow)

China vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world’s largest maker of wind turbines, and is poised to expand even further this year. China has also leapfrogged the West in the last two years to emerge as the world’s largest manufacturer of solar panels. And the country is pushing equally hard to build nuclear reactors and the most efficient types of coal power plants.

Multinational corporations are responding to the rapid growth of China’s market by building big, state-of-the-art factories in China. Vestas of Denmark has just erected the world’s biggest wind turbine manufacturing complex here in northeastern China, and transferred the technology to build the latest electronic controls and generators.

China intends for wind, solar and biomass energy to represent 8% of its electricity generation capacity by 2020. That compares with less than 4% now in China and the United States. Coal will still represent two-thirds of China’s capacity in 2020, and nuclear and hydropower most of the rest.

As China seeks to dominate energy-equipment exports, she has the advantage of being the world’s largest market for power equipment. The government spends heavily to upgrade the electricity grid, committing $45 billion in 2009 alone. State-owned banks provide generous financing.

The regulators have set mandates for power generation companies to use more renewable energy. Generous subsidies for consumers to install their own solar panels or solar water heaters have produced flurries of activity on rooftops across China.

China’s biggest advantage may be its domestic demand for electricity, rising 15% a year. To meet demand in the coming decade—according to statistics from the International Energy Agency—China will need to add nearly nine times as much electricity generation capacity as will the United States.

China is an ancient agricultural country which practices sustainable cyclical farming; waste from animals and humans are decomposed and processed into valuable fertilizer for the plants. It is this agricultural practice that has nurtured the fertility of the soil in China and fed hundreds of millions of people. China, like other densely populated oriental countries has only less than 2 acres of arable land per capita, compared to 20 acres per capita in the USA. However, the wave of modernization and westernization has brought changes to this centuries-old practice and many farms are resorting to the faster mode of production using chemical fertilizers and pesticides.

There is a small group of Chinese farmers who stayed loyal to their ancient farming practice. Among them is the Chairman of Jiangsu Tianniang ‘s Gao Dehao江苏田娘董事长高健浩). Gao has worked in cyclical farming all his life and Tianniang is his latest venture in Changsu, Jiangsu Province. The company collects animal waste and plant stalks from around the city and bring them to the compost site to turn them into fragrant organic fertilizers. These fertilizers are sold to other farmers as well as used in his 6500 acre rice fields nearby. Tianniang turned waste into fertile input for the soil; and with support of good agricultural practice and technology provided by the research base of Nanjing university, he is able to produce high yielding rice crops from his fields. Tianniang also uses a modern distribution method in the sale of his organic rice; he invites companies and individuals to adopt his rice field. Each person who adopts the field will be issued a card to collect the rice produce from the nearby shop in the city. This way, his products are sold before they are harvested.

Since the start of reform in 1979, the internal movement of people is a key feature of the Chinese growth phenomenon; millions of people move from the poor impoverished interior to find work in the factories, construction sites and service sectors in the cities. It is estimated that some 120 million Chinese consist of migrant labor which is approximately 9% of the population. They altogether send to their hometown some USD 65.4 billion every year.

The migrant labor leads a hard life: they are “guest” workers in the host city, with no social security or protection for their well-being. For three decades now, even though they have lived and contributed to the building of the host cities, their “hukuo” or registry remains with their native village. By this, it means that they and their children will not be integrated into the host city and therefore cannot enjoy any of the services and benefits of health care, education or housing.

Migrant labor is a very important group contributing cheap labor to the nation’s factories and construction sites as well as the “ah-yi” domestic help in the cities, but their plight is often pathetic. Not given proper training, their wages are often owed, they work long hours in sites with low safety protection; their living conditions are poor and often congested. They engage in many jobs that the urbanites will not lift a finger on: physically demanding construction work, cleaning up of the environment, keeping watch of premises. Although the migrant labor is a source of potential social disruptions and conflict, economists in China agree that this phenomenon will exist in China for a long period of time.

Due to the improved connectivity provided by railway and highways, many migrants workers stayed home while some became entrepreneurs while many work at the new jobs opened up by the development of their home provinces. Starting in 2009, the coastal cities are beginning to experience labor shortage because these migrant workers no longer want to return to deplorable working and living conditions.

“Save Energy, Cut Emission” has become the official policy tagline of the 11th 5-year plan of national government policy. China has embarked on an all-out effort to lower and review the efficiency of its energy consumption, cut waste and pollution and overall reduce its carbon footprints resulting from her economic development.

With high economic growth over the last several decades, the energy issue is a critical national security issue. China’s is the world’s second largest producer and consumer of energy. Yet with not much much oil reserves of her own China’s dependence on oil imports will rise from about 50% today to near 80% in 2030. Energy from coal brings enormous air pollution problems. 16 out of the 20 most polluted cities in the world are in China. The Chinese economy has to grapple with the twin challenge of maintaining high growth and rational energy consumption and caring for the fragile environment.

The Government has promoted the Scientific Development Concept as well as accelerating policy towards development of alternative/green energy. The official policy is to cut energy use and emission by 20% while not sacrificing economic growth.

China expanded its intake for higher education in 1999. Since then the number of graduates and unemployed graduates have grown in double digits. In spite of the fast growth of the Chinese economy in the last decade, the economy could not generate enough jobs for these graduates. There are multiple factors contributing to this grim situation: expanded in-take that increase the supply of graduates, courses and programs that are not in tune with the needs of industries, choosy graduates (those born after the 80’s) who are less tolerant of basic work and low pay. According to (source of data); for the period of 2004-2008, the unemployment rate among graduates was 30%; standing at 600,000 to over 1.6 million. In 2009, the numbers reached 3 million.

Baidu (Chinese: 百度; pinyin: Bǎidù) (NASDAQ: BIDU) is the leading Chinese search engine for websites, audio files, and images. Baidu offers 57 search and community services including an online collaboratively-built encyclopedia (Baidu Baike), and a searchable keyword-based discussion forum.A highly successful new Chinese company, in December 2007 Baidu became the first Chinese company to be included in the NASDAQ-100 index.[4]

The founders of “Baidu” was inspired by a poem written more than 800 years ago during the Song Dynasty; the poem laments about the yearning search for a beauty in a time of great chaos and tribulations. Most unexpectedly, in the most usual place, she turns up smiling at her hero “Baidu“ (literally means persistent searching for the ideal).

Today, 64% of China’s 400 million internet users goes to Baidu if they want to search for anything. China had an estimated 384 million Internet users by the end of 2009, more than the U.S. population—many experts project that this base is likely to grow to 840 million by 2013.

Population mobility is one of the features of political China; where the people’s movement within the country are highly regulated by the state. Since the founding of New China; the policy on residency registry or Huiko policy has undergone 3 stages of liberation: free movement before 1958, strict control between 1958-1978 and semi-liberation from 1978. On July 22, 1998, the State Council put in place a major policy to further liberalize the mobility of Chinese citizens within their country. Three key areas of reform were instituted: newborns are to stay with their parents, flexibility in consideration of separated spouses and lastly, for investors and home purchasers to reside in a city other than their native origin.

Due the need to placate the demands of a vast number of migrant population, some cities have pioneered innovation in this arrangement long before the reforms. An arrangement called the “blue chop household accounts” were practiced in Shanghai, Shenzhen, Guangzhou, Xiamen and Hainan. For employment, house ownership, tax residency and investment; after a stipulated period of time, one can apply for residency status in these cities. Beijing is more cautious in granting residency status, however it does grant “Beijing municipal residence permit” to professionals and researchers who worked in the city’s numerous high technology and multinational corporate headquarters.

Located in the central part of Zhejiang Province, spread over 105 sq km is Yiwu, the world’s largest small commodities market. Yiwu is a market economy miracle; a totally bottom-up phenomenon of traders converging in one single place to build a market. Indeed a market for the world’s traders to meet to buy and sell. There are today 11 specific commodities market with 14 streets designated to a single merchandize. The mart is found in a built up space of 4 million sq m: 620,000 booths, 16 categories of merchandize with 9,105 subclass and over 1.7 million kinds of different commodities. In addition, 180,000 brands and 6,000 general agents operate here. City officials say that if you stop by each booth for 3 minutes with an 8-hour visit in a day, it will take you 3 years to see all the display in Yiwu.

This county city of 2 million people serves both the world and China. It is described as the miracle of miracles in China’s recent economic upsurge; much credit goes to the entrepreneurial nature of the Zhejiang people and city officials for their support in creating and enhancing infrastructure to facilitate business exchange.

Similar to the history of many other emerging economies, the economic boom in China unfortunately did not lift all boats at its early stage. It is now almost impossible for a majority of its citizens making an ordinary income to own a decent home in the vast sprawling cities of the east coast. The phenomenon of the citizenry unable to afford decent housing is so acute that a television series titled “snail house” had been made to talk about the challenge. On average, housing prices have gone beyond the means of the average wage-earner. For someone making around RMB 2,000 a month, he would need to spend his entire income of 20 years in order to own 30 sq m in midtown Shanghai! For Chinese families, owning a home has been a traditional family aspiration so the entire family will chip in to help the young to own a home; parents will often give generously to their offsprings to help them build a nest.

The preoccupation to own a home yet challenged by high prices made one of the key pain of modern living for the Chinese. They dare not spend a cent more on living their lives as their commitment to pay the house mortgage affects their propensity to consume, their spending on healthcare or even on taking care of the elderly. The pressure to keep up with the payment puts the average salaried person perpetually under stress: they dare not spend money on leisure, afraid to lose or change their job, worry about bank interest rising, and worry about falling sick. In other words, they have become enslaved to their mortgages.

Buying a house is not a single individual’s business, but that of the entire family’s commitment. There is the “6-1 model“, six adults: the young couple and their parents joining their lifetime savings into owning a house for the young couple! Estimates show that 31% of home owners pay more than 50% of their monthly income towards repaying the mortgage, which is well above the 30% international standard of repayment. City governments are responding to this challenge by building low cost housing.

Paramount leader Deng Xiaopeng’s advocation of “let some people become rich faster than others” has actualized in the last 30 years of reform and opening; some of these people have not only become rich, they have become super rich. 51,000 people have become RMB billionaires out of the 825,000 millionaires in a survey revealed by Hurun Wealth Report of 2009, an independent survey of wealth ownership in China. This means six in every 10,000 people are now millionaires nationwide (Rupert Hoogewerf, Hurun Report founder and publisher). In the gold coast cities, the ratios are even higher: Out of 10,000, the number of millionaires and billionares are 88 and 54 for Beijing, and 62 and 38 for Shanghai respectively.

The cities with the majority of rich people are Beijing, Shanghai, Guangzhou, Hangzhou and Shenzhen. The average age of the millionaires is only 39 and their wealth came from investing in business, work in high income professions, speculating in real estate and professional investments in the stock markets. Those in business are the majority of the millionaires; they skillfully arbitrage on the economic conditions and grow their wealth by taking on risks, chief and most famous in this group are the business people from Wenzhou, a city in Zhejiang who are known for their frugality, good business sense and teamwork. The professionals who worked in multinational companies and the many new real estate, IT and internet businesses also benefited from high salaries and generous bonuses. The boom in the stock and real estate market had also created wealth for the savvy ones.

The 80’s belong to the cities at the Pearl River Delta, the 90’s belong to the cities at the Yangtze River Delta while the decade starting from 2000 belongs to the cities at the Bohai Economic Area formed by Beijing, Tienjin and the Bohai area towns. Moving forward into the decade starting from 2010, the inner cities in the West and those cities surrounding the coastal golden cities, commonly dubbed second- and third-tier cities are expected to have their turn for economic development. The second- and third-tier cities are very well placed to take over as the engine for growth as the central government via policy initiatives had prepared them for this role.

Second-tier cities are an important component of China’s urban system, they account for 84% of the total cities until 2004. They are playing an increasing role in urbanization, industrialization and transformation of the rural population into urban. In terms of cost of operation, supply of labor and infrastructure for connectivity and mobility; many of the second-tier cities such as Wuhan, Chengdu, Suzhou, Shengyang, Xian and Xiamen offer great advantages for businesses. Companies are not only able to consider exploiting the cost advantage of good infrastructure, it can also use these cities as their base to capture the vast emerging consumer markets in the interior region.

According to a survey jointly carried out by the HSBC and Fudan University, the number of Chinese with an annual income of USD 7,500–USD 25,000 will reach 100 million in 10 years from 2010. This, along with other surveys, may be optimistic, but all points to the emergence of China’s middle class as a key driver for growth. There are two typical features of the Chinese middle class which distinguishes them from those outside China; firstly the Chinese middle class is much younger and secondly their propensity to consume is higher.

In China, those who can participate in the economic opportunities created by the reform and opening possess a higher education qualification and training, especially those who are also trained to integrate with the world. The older Chinese people are left behind this for historical reasons. Besides, the Chinese government is investing hundreds of millions to beef up the higher education system to equip its youth with more relevant and current skills. Hence the Middle Class falls in the age group of 25-44 years old.

These newly created Middle Class has a demand for almost everything they need for living the good life: house, car, home electronics, their first holiday abroad and private education for their children.

Some 500,000 people congregate at Shenzhen’s Huajiang Bei Lu; referred to as the electronics street by locals creating an annual GDP of RMB 74 billion of economic activities related to electronics and 3C mobile telephony. This street of less than 1 km is the shortest, but perhaps the largest and most concentrated 3C supply chain in the world, every day the latest technology are put to the market: buyers, sellers, logistics and factory owners are seamlessly connected at China’s largest one-stop “Shanzai” Market. Mobile phones, PCs, notebooks and all kinds of related electronics and their peripherals are available. A minimum order of 1,000 brainless “Shanzai” Ipad with functions more superior than the original can be delivered to a buyer within a day!

Located in Buji, Longgang District of the southern city of Shenzhen, the Dafen Art Village has the highest concentration of artists or artistic workers in one single location on earth! This small village of 4 sq km with 300 original inhabitants has now been transformed into China’s leading reproduction base of oil paintings for export. Dafen produces more replicates than original works, there are more than 2,000 artists and 200 painting-ateliers with over 10,000 artists and apprentices generating an annual output of RMB 30 million. Artist Zhang Libing has painted more Van Goghs than Van Gogh ever did: Mr. Zhang estimates that he has painted up to 20,000 copies of Van Gogh’s works. Dafen was founded by a Hong Kong businessman who was attracted to the energy of the village people, so he brought artists from outside and set up a small studio back in 1989. Since then, Dafen has become a landmark known for its art and artistic reproduction of world famous works: art dealers from around the world come to Dafen. ( http://www.oilpainting-dafen.com)

In 2010, out of the 1.3 billion people in China, there are 100 million who are considered as Upper Middle Class and 500 million considered as Middle Class by the purchasing power parity calculation.

Urbanization: 47% of the consumption is found in China’s urban centers which include the second- and third-tier cities. According to research by the Commonwealth Magazine of Taiwan—with an average growth of 10%, per capita GDP over USD 3,000, per capita annual spending over RMB 10,000 and over USD 10,000 at coastal cities such as Guangzhou and Inner Mongolia’s Erdos—there are 47 Super Cities in China.

Cities with per capita income over USD 10,000

14 cities with the total population of 100 million

City

Per capita

Population

City

Per capita

Population

Erdos

19,672

1.63m

Foshan

11,798

1.429m

Suzhou

15,646

6.33m

Shanghai

11,357

12.91m

Shenzhen

13,581

2.599m

Ningbo

10,833

7.19m

Guangzhou

13,006

3.648m

Dalian

10,599

6.13m

Baoto

12,000

2.53m

Weihai

10,256

5.76m

Daqing

11,906

2.8m

Zhuhai

10,218

0.414m

Wuxi

11,885

6.2m

Beijing

10,070

17.55m

Source: Commonwealth Magazine (May 19, 2010 issue)

China City Statistics Department

Right or wrong, this developmental approach will have tremendous repercussions on the world landscape. The Chinese in Chinese cities will remain the key show of the 21st century; how they live, work, play and consume. Knowing how to deal with the Chinese in their new national setting becomes a key to success for the 21st century professional.

Who has the most hits on the internet? Yes, with over 400 million hits by August 15, 2010, he is a young Chinese born in 1982 and enormously popular among the post-80’s generation. Han Han did not go to college: he races car and write novels while single-handedly build a career and look after his family. Han was named a member of the future global leaders by US Time Magazine in 2009, he is currently the reining hero in China’s internet world.

Han began to blog in 2005: he writes on social and contemporary issues, reflecting on the state of the world, its policy and human behavior. His independent-thoughts: critical, provocative, unconventional and unpretentious revelations have won him a large following over the internet as well as sold millions of books and magazine copies. He is a prolific writer; his ground-breaking novel “Triple Door” sold 2 million copies to become the best selling literary work in the last 20 years in China’s history. Han is multitalented: he races professionally and won the 2007 China Circuit Championship. Han is also involved in music production. His debut album, R-18 (restricted to 18 and above), was released in September 2006 with self-composed lyrics.

After a long delay and a gestation period of about 18 months, the magazine published by Han hit the shelves on July 6, 2010. Titled Party (“Chorus of Solos” in Chinese), it shot to the Number One position on Amazon.cn within ten hours of going on sale. With the huge success of the magazine, Han has added another notch to his belt: editor and producer of a wildly popular magazine.